New Year Rally Has FedEx Options Bulls Winning Big

FDX stock looked attractive for a bullish contrarian trade

Jan 4, 2018 at 4:46 PM
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Subscribers to Schaeffer's Weekly Options Countdown service doubled their money earlier this week on our FedEx Corporation (NYSE:FDX) weekly 1/5 245-strike call recommendation. Here's a closer look at what put FDX stock on our bullish radar for the first week of 2018, and how the options trade we recommended last Sunday, Dec. 31, unfolded.

On Tuesday, Dec. 19, FedEx reported blowout fiscal second-quarter earnings, which helped send the shares to a record high on Dec. 21. The stock quickly consolidated some of these gains in the $250 region, but still ended 2017 up a whopping 34%.

Despite these impressive technical feats, sentiment was skewed toward the skeptical side. The stock's Schaeffer's put/call open interest ratio (SOIR) was docked at 1.61 last Friday, indicating puts outnumbered calls among options set to expire in three months or less. This ratio registered in the 83rd annual percentile, meaning this short-term put-bias was more pronounced than usual. An unwinding of these bearish bets could create tailwinds for the shares.

Plus, it was an attractive time to purchase premium on FDX options, given the stock's Schaeffer's Volatility Index (SVI) of 16% was docked in the 7th annual percentile. In other words, low volatility expectations were being priced into short-term contracts.

When the trading reopened on Tuesday, Jan. 2, after the long holiday weekend, FedEx stock immediately gapped higher along with the broader equities market. FDX continued its momentum into Wednesday's trading -- allowing us to close our position that day, when the security was carving out new highs.

fdx stock 30minute chart jan 4

 

 

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